PAA

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Transcript Summary

Plains All American Pipeline (PAA) delivered a strong Q1 2026, reporting $730 million in adjusted EBITDA and raising its full-year 2026 guidance by $130 million to a $2.88 billion midpoint. This optimism stems from a constructive macro environment where geopolitical tensions have heightened the value of North American energy infrastructure. The partnership is nearing the completion of its $3.3 billion NGL asset sale, which will transition PAA into a pure-play crude midstream entity. Sale proceeds are earmarked for significant debt reduction, aiming for a leverage ratio at the low end of its 3.25x-3.75x target. While Crude segment operations faced minor weather headwinds in the Permian, the NGL segment outperformed due to strong Canadian border flows. Management highlighted a disciplined approach to capital, focusing on synergy capture from the Cactus III acquisition and cost-reduction initiatives totaling $100 million through 2027. Despite a regulatory challenge to the Keyera transaction, PAA remains committed to its strategic roadmap, focusing on free cash flow generation and unitholder returns through distribution growth and potential buybacks. The company views the Permian as well-positioned for volume growth in 2027 as egress constraints alleviate.

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Full Earnings Call Transcript — Q1 • 2026-05-08

Operator: Good day, and welcome to the Plains All American Pipeline, L.P. and PAGP First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your touch-tone telephone. Please note this call is being recorded. I would now like to turn the call over to Blake Fernandez, Vice President of Investor Relations. Please go ahead.
Blake Michael Fernandez: Thank you, Michelle. Good morning, and welcome to the Plains All American Pipeline, L.P. First Quarter 2026 Earnings Call. Today’s slide presentation is posted on the Investor Relations website under the News and Events section at ir.claims.com. An audio replay will also be available following today’s call. A condensed consolidating balance sheet for PAGP and other references are in the appendix. Today’s call will be hosted by Willie Chiang, Chairman, CEO and President, and Al P. Swanson, Executive Vice President and CFO, along with other members of our management team. With that, I will turn the call over to Willie.
Wilfred C.W. Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us. This morning, we reported first quarter adjusted EBITDA attributable to Plains All American Pipeline, L.P. of $730 million. Al will cover the details on our results in his portion of the call. Let me start with the macro environment, which has changed significantly since our last call. Recent geopolitical events have reiterated the importance of reliable, secure, and responsibly produced energy. The closure of the Strait of Hormuz has significantly disrupted global shipping channels and Middle East supply, contributing to stronger commodity prices over the past couple of months. In response, excess floating storage has been drawn down, and strategic petroleum reserves are being released globally. While this helps balance the market deficit on a short-term basis, we are seeing a more constructive oil market developing on a longer-term basis. We expect this destocking environment to continue over the next number of months and ultimately drive a restocking phenomenon longer term, as countries replenish depleted strategic petroleum reserves globally. Post-war, we would not be surprised to see several countries restock their SPRs above pre-war levels, essentially creating an additional layer of demand into the future, which should support prices and incent producer activity. On the supply side, OPEC production capacity post-war remains uncertain, but we suspect spare capacity will be tighter based on a slower recovery of shut-in production and infrastructure damage during the war. We believe the conflict shifts the focus towards more geopolitically stable regions to ensure security of supply. Against this backdrop, North America, including the Permian, remains well positioned to play a critical role in meeting global demand. As this occurs, the value of existing infrastructure in the ground should continue to increase over time. For these reasons, we believe Plains All American Pipeline, L.P. is well positioned for both the near-term volatility and longer-term macro environment. Based on these market dynamics and the growth trajectory that we see for our business, we have increased our initial 2026 EBITDA guidance. As highlighted on slide four, we are increasing the midpoint of our full-year 2026 adjusted EBITDA guidance by $130 million to $2.88 billion. The NGL segment EBITDA is now expected to be $170 million, following first quarter outperformance of $45 million and the updated divestiture timing now in May 2026. Our trajectory of growth this year is underpinned by three key drivers: the sale of our NGL assets, Cactus III synergy capture and streamlining. The growth of our EBITDA is paced with the execution of these initiatives and is enhanced by capturing optimization opportunities that have been substantially secured over the next three quarters. We are also seeing increased producer interest in both Canada and the United States for additional connections to our system. The combination of all these factors will ramp up through the year and position us well into the future. Our premier crude oil footprint continues to support stable fee-based cash flows in a variety of macro backdrops. As global markets turn to North America for long-term energy supply, we are well positioned across key producing basins and downstream markets to drive multiyear growth. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our assets, maintaining a flexible balance sheet, and continuing to return cash to unitholders via our disciplined capital allocation framework. With that, I will turn the call over to Al to cover our quarterly performance and other financial matters.
Al P. Swanson: Thanks, Willie. Slides five and six contain adjusted EBITDA walks that provide additional detail on our performance. For the first quarter, we reported crude oil segment adjusted EBITDA of $582 million, which was broadly in line with our internal estimate and includes a full-quarter contribution from the Cactus III acquisition, offset by a number of one-off items including winter weather impacts in the Permian, system maintenance, and timing of minimum volume commitments. Moving to the NGL segment, we reported adjusted EBITDA of $145 million, reflecting a stronger-than-expected contribution from higher straddle production and improving frac spreads in March. A summary of 2026 guidance and key assumptions is on slide seven. Growth capital remains $350 million, while maintenance capital was increased to $185 million reflecting ownership of the NGL assets into May. Regarding the $130 million increase in EBITDA guidance, key drivers are outlined in the waterfall on slide eight. The NGL segment increased by $70 million, driven by outperformance in the first quarter along with ownership of NGL assets into May. The oil segment was increased by $60 million, driven by captured optimization opportunities, FERC tariff escalators, increased spot tariff volumes, and increased West Coast volumes. To the extent that the elevated commodity environment persists into the second half of the year, we would expect to capture incremental opportunities. For 2026 guidance, we continue to assume Permian crude oil production to be relatively flat year over year. While we have yet to see a meaningful shift in U.S. producer behavior, any increase in activity would likely benefit 2027 and beyond. We expect an improving back end of the crude oil curve and removal of natural gas takeaway constraints as new egress projects start up later this year to drive incremental activity throughout the year. As illustrated on slide nine, we remain committed to generating significant free cash flow and returning capital to unitholders while maintaining financial flexibility. For 2026, we expect to generate $1.85 billion of adjusted free cash flow excluding changes in assets and liabilities, and excluding sales proceeds from the NGL divestiture. Our pro forma leverage at the end of the first quarter was 4.1x, reflecting the Cactus III acquisition. First quarter leverage pro forma for the NGL sale would decrease to approximately 3.5x, and we would expect leverage to migrate towards the low end of our target range of 3.25x to 3.75x by the end of the year. We expect net proceeds from the NGL sale to be approximately $3.3 billion, which is approximately $100 million higher than our prior estimate. Our acquisition of Cactus III last year has mitigated the tax liability of the unitholders resulting from the NGL divestiture. As a result, we no longer expect to pay a special distribution following the closing of the NGL sale. Before handing it back to Willie, I would note that both current and deferred taxes are elevated on the statement of operations this quarter because of the restructuring activities associated with the NGL sale. There was no cash tax impact in the quarter, as payment of the related taxes will be made in conjunction with closing or in future periods. With that, I will turn the call back to Willie.
Wilfred C.W. Chiang: Thanks, Al. In the midst of volatile energy markets, we remain steadfast and focused on executing our three initiatives for 2026: closing the NGL sale, driving synergies on Cactus III, and advancing our streamlining initiatives. Our efficient growth strategy has positioned us well to execute through a range of market environments, generating durable cash flow and creating long-term value. Importantly, the improving oil macro environment is starting to present additional organic investment opportunities with strong returns. We continue to evaluate both organic and inorganic opportunities in a disciplined manner. Capital investments help underpin long-term EBITDA growth, but they must meet our return thresholds and provide visibility into future return of capital to unitholders. Our transition to a pure-play crude midstream company, coupled with the acquisition of Cactus III, is proving timely as tensions in the Middle East position North America as a key source of global energy supply into the future. Before I turn the call over to Blake, I would like to make a brief comment about our pending transaction with Keyera. In terms of timing, as reported by both Keyera and Plains All American Pipeline, L.P. in separate releases earlier this week, we are targeting to close the transaction this month. While it is unfortunate that the Competition Bureau has chosen to challenge the transaction, their lawsuit does not prevent the parties from closing the transaction, which both Plains All American Pipeline, L.P. and Keyera are committed to do. I realize you may have some additional questions, but I hope you understand it would be inappropriate for us to comment any further on this matter, so we would appreciate it if you would refrain from asking questions regarding the transaction. Blake, I am now going to turn it over to you to lead us through Q&A.
Blake Michael Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. This will allow us to address as many questions as possible from participants in our available time this morning. With that, Michelle, we are ready for questions.
Operator: Thank you. If your question has been answered and you would like to remove yourself from the queue, please press 11 again. Our first question comes from Brandon B. Bingham with Scotiabank. Your line is open.
Brandon B. Bingham: Thanks. Good morning, everybody. I just wanted to ask on the new guide. If I look at your sensitivity and the new crude price expectations, it would imply that, at least on price movements alone, the crude contribution should probably be higher than what is currently shown. Could you just walk us through what is baked into the new guide and maybe the embedded outlook in there?
Al P. Swanson: Sure, Brandon. Our original guidance for the year assumed a $60 to $65 environment for 2026, so roughly a $62 midpoint. We came into the year highly hedged at roughly those levels. The $85 environment that we are talking about for the future is roughly the strip from June through December when we looked at it. So there would be some benefit based on crude prices on our PLA, but because we had hedged quite a bit before entering the year, that sensitivity we give is just a raw sensitivity. In order to make it more meaningful, we would have had to have disclosed to you the hedge position at the beginning of the year, which we have not historically done. So what I would say is that the first quarter performance and the nine months of our guide are very minimally impacted by actual PLA pricing.
Brandon B. Bingham: Very helpful, thank you. And then maybe just wanted to ask about, in light of some of the commentary in your prepared remarks about a more constructive longer-term market and just the whole macro environment as it stands today, how are you thinking about the potential for the EPIC expansion at this point?
Jeremy L. Goebel: Brandon, good morning. We are excited about the opportunities around our entire long-haul portfolio and are having constructive dialogue with existing customers and new customers looking for secure supply from the United States. That results in some spot activity, but longer term the expectation is to contract at higher rates than maybe before, with potentially new counterparties. That would pertain to recontracting existing pipeline capacity and expansions as well. We are looking at all of the above and hope to have updates in the coming quarters on how that looks.
Brandon B. Bingham: Okay. Great. Thank you.
Operator: Our next question comes from Gabriel Philip Moreen with Mizuho. Your line is open.
Gabriel Philip Moreen: Hey, good morning, everyone. Maybe I will just ask the Permian macro question, Willie, in terms of your best outlook. I think previous years you talked about 200 thousand-ish barrels a day year-over-year growth. Best venture at this point, I realize there are a lot of things in play and things are changing quickly, but do you think that goes significantly higher from here, 400 thousand, 500 thousand in 2027? I am just curious what your latest thoughts are there.
Wilfred C.W. Chiang: Yeah, Gabe. Jeremy may have some additional comments, but I will give you my thoughts. U.S. producers have remained very disciplined as far as capital allocation, and they are looking at the back end of the curve to see where it goes. WTI is roughly $70, and our view is when you start getting into $75 and above, increased activity happens. There are also some other short-term operating constraints that are limiting production a bit. The Permian has some natural gas takeaway constraints. There are new lines that are being built and being commissioned as early as later this year, so the thought is that alleviates itself. Our assumption for the Permian this year was flat, and if there is some upside, obviously we benefit from it. We are not giving a formal guide, but we would expect growth going forward and probably some momentum of volumes that will increase production, maybe with a little bit of a flush later this year or early next year. I think it really depends on the back end of the curve, but the systems are ready to go.
Gabriel Philip Moreen: Thanks, Willie. And then maybe if I can ask on the sustainability of some of the marketing opportunities you are currently seeing. Can you talk about some of the spreads that you are seeing and also the value of dock space, the extent you are debating internally maybe terming some of those out at higher prices? And then, the steepness of the curve and backwardation—how that is playing with your storage. Is that helpful? Is that a hindrance?
Jeremy L. Goebel: Gabe, without getting into specific strategies, time, location, and quality spreads—all that volatility—we benefit from all of those because we have the assets, the supply position, and the trading function to capture those opportunities. It is hard to forecast those when they arrive. That could be time spreads—do you sell a barrel now and buy it back later by emptying a tank? Differences in grades between Canada and the United States, differences in Gulf Coast grades—all of those are strategies and things we can take advantage of with our integrated system. We are excited about those opportunities. What we have put in the forecast has been substantially captured over the next three quarters. This is a very volatile period; we have only been in this sixty to seventy days, so it is hard to forecast that to continue. But if it continues, we would expect to capture more opportunities going forward. And just to add on, we estimate there is close to 200 thousand to 300 thousand barrels a day of oil that is behind pipe in the Permian Basin. So that flush production Willie referenced is substantial, and a lot of that is in the more constrained areas of the Delaware Basin, where we have a broader footprint, including New Mexico and other places. If you look at the Waha spread, flat price in Waha has been largely negative since last September. That is what is accumulating all of this to go, and as gas prices recover, productive capacity is already there to add. As you add more, that puts more pressure on potentially long-haul spreads and the ability to term up contracts at greater rates. We are seeing more demand from new customers, and we are seeing potentially flush production. Those should all help convert short-term opportunities into longer-term opportunities.
Wilfred C.W. Chiang: And if you look at our numbers, long-haul has increased and margins on that have also improved. I think we are moving to a more structurally full-pipe situation as we go forward, which should be constructive for us.
Gabriel Philip Moreen: Appreciate it. Thanks, guys.
Operator: Our next question comes from Manav Gupta with UBS. Your line is open.
Manav Gupta: Good morning. I just wanted to focus a little bit on the weather impact. I think it is about $49 million quarter over quarter. I am trying to understand, since you mention timing of minimum volume commitments, is there a possibility some of this can be reversed in 2Q—some of what you lost in the current quarter comes back into the second quarter? If you could talk a little bit about that.
Jeremy L. Goebel: Yes, Manav. Those are two different things. With regard to weather, weather is just production shut in for a period—you cannot make that back, but the flush production does come back. With regard to the timing of MVCs, that is continuous in our process. If you look at some of the earnings calls from others about their dock performance or other things in the first quarter, freight was really expensive and margins did not have people moving, so long-haul volumes were down across the industry. But that has completely reversed in timing. So you would absolutely expect that to be recovered—it is just a question of those MVCs accrued versus when they are paid. All the pipelines are full again, and the MVCs are being reversed.
Wilfred C.W. Chiang: Manav, if you are referring to slide five, I think the point of your question is on that negative $49 million. There are a bunch of one-time events in there that you are absolutely correct will not occur again as we go forward.
Manav Gupta: Perfect. And if you could also talk about the very strong results from the NGL segment in the first quarter versus the last quarter—some of the drivers of what helped you deliver much stronger earnings in that segment quarter over quarter? Thank you.
Jeremy L. Goebel: Sure, Manav. Higher border flows than expected—you had very full storage in Canada and continued production, which required volumes to be exported, and those were exported through our Empress asset. So higher border flows lead to more straddle production, and that would all be unhedged and impact results. In addition, higher frac spreads towards the end of the first quarter contributed. I would say those two, and that has continued into the second quarter, which is reflected in the increase in guide for the NGL business through closing.
Manav Gupta: Thank you.
Operator: Thank you. Our next question comes from Michael Jacob Blum with Wells Fargo. Your line is open.
Michael Jacob Blum: Thanks. Good morning, everyone. My question is on the guidance, the crude segment. It sounds like most of the increase is optimization that you have already locked in, and then maybe the rest is PLA. I just want to make sure I understood that. And then, if prices stay elevated for the balance of the year, would there be upside to the guide in the crude segment, or is that already baked into the numbers?
Wilfred C.W. Chiang: Thanks, Michael. Great question. Our assumptions are that the numbers in there are really what we have captured that will roll off through the year as we actualize optimization efforts. And you are correct—if we have a stronger macro environment and higher prices, there definitely is upside.
Michael Jacob Blum: Great. Thank you.
Operator: Our next question comes from Jeremy Tonet with JPMorgan Securities. Your line is open.
Jeremy Tonet: Hi. Good morning. Just wanted to see what you are seeing locally, ear to the ground there, as far as producer activity—whether rigs are being picked up by the independents or larger drillers as well—and what would be needed across the strip to gain the comfort to do that? How do you think production could uptick here, and what do you see?
Jeremy L. Goebel: Jeremy, good morning. You have already seen about 15 rigs added back, and we would expect some to continue. But as Willie mentioned, there is a bit of a throttle right now—you cannot add more natural gas to the system if flaring is not allowed. Productive capacity is there; rigs being added now would impact 2027. I think there was a bit of confusion in the market in that the products market and the physical crude market are substantially tighter than the financial markets would indicate, which means the back end of the curve has to come up. It is very difficult, even if you opened the Strait of Hormuz tomorrow, to get everything back in order the way it was. It is going to take a while for shipping to start. You have to empty tanks before you can start back up production. Products markets are just empty in some places. There is a real dislocation that will take time. Some integrators have stated for every day it is down, it is three days to get back up. So it is potential for months to get out of this even if it were resolved today. I think that is the part producers are waiting on—more assurance in the back end of the curve to bring rigs on. At this point, the service companies have stacked equipment. It takes capital and commitments to bring those back. Producers need commitment from prices that they will be there, and the longer this goes, the more likely that will occur. But the dislocation in the back end of the curve right now is maybe causing some hesitancy, which is going to prolong the problem.
Jeremy Tonet: Got it. That is helpful. How do you think that impacts basis over time and what it could mean for future egress expansion?
Jeremy L. Goebel: It is constructive for basis—more production and more demand on the water. Specifically in the Corpus market and some of the more efficient docks, you are seeing higher pricing relative to even the screen. On a prolonged basis, that says there are new buyers coming to America. Vessels that used to be pointed at other locations intend to come back and forth to the United States for a while. You are seeing that on the NGL side, you will see it on the LNG side, and on the crude side. More buyers and more demand is generally constructive for spreads, and we would expect to match either our suppliers or our customers with that and, hopefully, offer service at a higher rate.
Wilfred C.W. Chiang: Jeremy, you are aware that on Cactus III we have expansion capacity. As we have always said, we are going to pace that with market demand and commercial contracts. As we have gotten to know the project and assessed it, we have the ability to do that in a phased approach. It is fairly flexible for us to get additional volumes. It is not a binary big expansion—there are ways to do it in phases which should match customer demand. Generally speaking, in a higher price environment, there are more opportunities because there is a pull on the whole system, and optimization opportunities become more prevalent versus a lower price environment where less is moving.
Jeremy Tonet: That is helpful. Thank you.
Operator: Thank you. Our next question comes from Jackie Kalidas with Goldman Sachs. Your line is open.
Jackie Kalidas: Hi, good morning. Thank you so much for the time. First, I was wondering if you could comment on the progress of your cost reduction initiatives. Are these on track with expectations at this point, and is there any potential for upside capture here? When should we expect Plains All American Pipeline, L.P. to realize more significant efficiencies through the year?
Christopher R. Chandler: Good morning, Jackie. We are on track to capture the efficiencies—$50 million by the end of 2026 and an additional $50 million in 2027. We have already made a number of changes, some unrelated to the NGL transaction and some in anticipation of the NGL transaction. We feel confident in the number. There is always upside—we are always looking for additional opportunities, and we will certainly pursue any that we find. We are not prepared at this time to change the $100 million target we have through 2027, but we are on track and things are going well.
Jackie Kalidas: Thank you. And then one on capital allocation. With debt reduction as a near-term focus, particularly following the pending NGL sale, when can we expect a shift—or what would allow a shift—from debt paydown to a larger focus on potential buybacks or preferred paydowns?
Al P. Swanson: Clearly, with the proceeds from NGL, we intend to take that and pay down a little over $3 billion of debt, which would be the term loan, the outstanding CP we have, and a $750 million note that matures later this year. Post that, we expect to be right at the midpoint of our leverage range—around 3.5x—and expect that to migrate down, which will then bring us back to where we have been for the last number of years prior to the EPIC acquisition, with leverage towards the low end of our range. Our capital allocation, first and foremost, is focused on maintaining distribution growth, funding investments—whether organic or M&A-related—as well as looking at taking out preferreds should leverage remain at or below the bottom end of the range, and opportunistic share repurchases. So, once we get through the NGL sale and deployment of the proceeds, we return to the framework we have been operating under for the last several years.
Jackie Kalidas: Great. Thank you.
Operator: I am showing no further questions at this time. I would like to turn the call back over to Willie Chiang, President, CEO and Chairman, for closing remarks.
Wilfred C.W. Chiang: Michelle, thanks. We appreciate everyone’s support and attention, and we look forward to seeing you on the road. Stay safe. Thank you very much.
Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.